Can Ltd company lend money to another Ltd company?

Can Ltd company A lend money to another Ltd company B with no shared directors.

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Can Ltd company A lend money to another Ltd company B with no shared directors? Company B will pay interest to Company A. Company B can provide a charge for Company A. 

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RLI
By lionofludesch
06th May 2019 18:01

Yes.

I hear a lot of banks do it.

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Replying to lionofludesch:
the sea otter
By memyself-eye
06th May 2019 18:09

you read my mind.....
(what little there is of it)

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Replying to lionofludesch:
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By suhumar
06th May 2019 18:16

Thanks for the reply.

Well, the Ltd company is a IT trading company willing to lend another IT trading company. Is there any regulations around it?

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By andy.partridge
06th May 2019 19:55

Is there something you’re not telling that might have a bearing on the advice?

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Replying to andy.partridge:
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By suhumar
06th May 2019 20:38

No. I have a property company through which I want to buy a property and I want to borrow money from a friend who has a IT trading company. I just want to make sure I can borrow in this setup. It's not a director's loan or anything like it.

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Replying to suhumar:
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By andy.partridge
06th May 2019 20:47

Are you sure? You said earlier it was an IT company lending to another IT company.

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By suhumar
06th May 2019 20:56

My IT company is going to lend to my property company. I am a director in both these companies.

My end goal is, borrow money from a IT trading company(friend) and use it to buy property through my property company. If I can borrow it directly to the property company then great if not, can I borrow to my IT trading company.

Hope that clears it up.

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Replying to suhumar:
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By andy.partridge
06th May 2019 22:18

No, there is no reason why your property company can’t borrow money from your friend’s IT company.

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By suhumar
07th May 2019 09:46

Thanks for your reply.

Just to clarify, my property company is a SPV with the following Nature of business. Should this be of any concern?

68209 - Other letting and operating of own or leased real estate
82990 - Other business support service activities not elsewhere classified

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Psycho
By Wilson Philips
07th May 2019 09:54

The point that you seem to be missing is -

If that company needed/wanted to borrow from a bank to purchase property could it? If the answer is yes, then there is no reason why it could not borrow from any other lender instead. (Unless for example it is an old company with a Memorandum that very unusually prohibited such borrowing).

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By suhumar
07th May 2019 10:20

Thanks for your reply Wilson Philips.

I just want to make sure the lender(friends IT trading company) doesn't have a problem as well.

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Replying to suhumar:
Psycho
By Wilson Philips
07th May 2019 10:38

Again, unless there is any constitutional document that prevents the company from lending money it can do whatever it wants with its surplus cash. Whether there might be tax implications for the shareholders of the lending company, as alluded to below, is another matter.

As an aside - not that it should change the analysis - you have been inconsistent with the facts:

"Can Ltd company A lend money to another Ltd company B with no shared directors?"

"I am a director in both these companies"

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Replying to Wilson Philips:
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By suhumar
07th May 2019 10:53

I own two companies and I am the director in those companies.

The question was can I borrow money from my friends company in which I am not a director.

I understand I can borrow money between my companies. Thanks again for your valuable inputs.

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Replying to suhumar:
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By andy.partridge
07th May 2019 11:09

You do need to be careful with your questions and answers because each time you post something it has a slightly different meaning. Now, for example, you are talking about *you* borrowing from your friend's company. Before it was *your property company* doing the borrowing.

How do you expect to have consistent replies when you are inconsistent with your postings?

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the sea otter
By memyself-eye
06th May 2019 18:08

Banks do it all the time.

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paddle steamer
By DJKL
07th May 2019 09:54

Whilst it may be done the lender's directors/ shareholders ought to consider possible ER issues re the shares in the lender if such a loan is made, this may be of no concern, may make no difference to ER status of the lender's shares but taking action blind is usually not a good idea.

Accordingly professional input is advisable.

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Replying to DJKL:
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By suhumar
07th May 2019 10:18

Thanks for your inputs DJKL.

What do you mean by ER issues re the shares. Sorry I am not familiar with the abbreviation.

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Replying to suhumar:
paddle steamer
By DJKL
07th May 2019 10:40

Entrepreneurs Relief- a potentially lower rate of capital gains tax were the shareholders in the lender to sell their shares in same.

But see below re "trading companies" and then the following page re HMRC's take on things.

https://www.gov.uk/hmrc-internal-manuals/capital-gains-manual/cg64055

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Replying to DJKL:
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By suhumar
07th May 2019 10:46

Thank you very much. That is very useful, I will look into it.

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By paul.benny
08th May 2019 08:41

You might also want to involve a lawyer to ensure that the loan is properly documented. In particular, you should consider the repayment terms, whether either party can require early repayment, and what happens if the borrower cannot meet the repayments.

Borrowing/lending money between friends is a sure way for ending a friendship, especially if the 'what-ifs' are not considered before they happen.

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